In a closely watched case, the Massachusetts Supreme Judicial Court (SJC) recently issued its decision in Miele v. Foundation Medicine, Inc., holding that non-solicitation agreements with forfeiture clauses are not “forfeiture for competition agreement” subject to the tight strictures of the Massachusetts Noncompetition Agreement Act (MNAA).
The MNAA requires noncompete agreements entered into during or at the start of employment to meet certain standards to be enforceable. Generally, however, the MNAA distinguishes between “noncompetition” agreements and “non-solicitation” agreements. A non-solicitation agreement would include an agreement where a former employee is allowed to work for a competitor of their former employer, but is, for example, prohibited from attempting to recruit their former colleagues and clients to join them at their new employer. This carve-out means that non-solicitation agreements ordinarily do not need to comply with the MNAA’s strict requirements in order to be enforceable.
The ambiguity the SJC addressed concerned the fact that the MNAA does apply to “forfeiture for competition agreements,” which the statute defines as agreements that impose “adverse financial consequences on a former employee as a result of the termination of an employment relationship if the employee engages in competitive activities” (emphasis added). To illustrate, a forfeiture for competition agreement would include an agreement where an employee is required to give their severance payment back to their former employer if they violate the agreement by engaging in “competitive activities.” The problem was that the MNAA does not define the term “competitive activities.”
In Miele, the employee signed an agreement in which she agreed to forfeit her severance payments if she violated a non-solicitation agreement. The SJC decided the question of whether solicitation counts as a “competitive activity” under the MNAA. The Court concluded that it does not. The SJC found that the MNAA’s carve-out for non-solicitation agreements meant that the phrase “competitive activity” could not encompass solicitation which would “expand the scope of forfeiture for compensation agreements to include non-solicitation provisions – despite the statute’s clear exclusion of such provisions from the definition of noncompetition agreements.” This would render the MNAA internally contradictory, said the Court.
This blog post provides an update to our earlier post found here: https://www.bennettandbelfort.com/sjc-to-rule-on-scope-of-non-compete-statute/
